Trends that have been developing over the past decade will continue and have far-reaching future implications for the structure of the industry, for trade, for research, and for who succeeds and who doesn't

What does the future hold for the chemical industry? Will globalization erase the national character of the industry's major players? Will life sciences claim even more of the industry's hallowed names? Will the U.S. branch of the industry continue to make a large positive contribution to the nation's trade balance? Will the trend toward sustainability end the industry's battles with regulators and environmental activists?

To explore these and other related topics, C&EN invited a group of leaders from industry and government to participate in a panel discussion of the chemical industry over the next 25 years. ACS Immediate Past-President Paul S. Anderson, who is senior vice president for chemical and physical sciences at DuPont Merck Pharmaceutical Co., moderated the discussion. The panel also consisted of E. Gary Cook, chairman, president, and chief executive officer of Witco Corp.; Earnest W. Deavenport Jr., chairman and CEO of Eastman Chemical; J. Michael Fitzpatrick, vice president and chief technology officer of Rohm and Haas; Judith G. Giordan, vice president and corporate director of research and development of International Flavors & Fragrances; J. Roger Hirl, president and CEO of Occidental Chemical; Martha A. Krebs, assistant secretary for energy research at the Department of Energy; and Brian W. Metcalf, senior vice president of SmithKline Beecham.

Restructuring has been the guiding principle of the chemical industry for more than 10 years. Employment cuts, acquisitions, divestitures, mergers, strategic alliances, changing company directions, expanding into new geographic areas and contracting from others, and focusing on core businesses have all been in the news and on the minds of corporate executives and employees alike. And this restructuring will continue. The evolution of the industry will be slow. It will be like watching the seasons change. Day-to-day, one doesn't see much difference, but suddenly it is summer-or winter-and the entire landscape looks different.

The result will be that the landscape of the chemical industry 25 years from now will probably look much different from what it is today. The changes will be at many levels. The trend that began in the mid-1980s of the industry splitting itself into two distinct camps-companies largely devoted to commodity chemicals and those involved primarily in making value-added chemical products-is expected to continue. In the first camp are Huntsman Corp. and spin-offs such as Lyondell Petrochemical, Geon, and Aristech. In the other camp are large- and medium-sized companies such as Monsanto, ICI, DuPont to some extent, Hercules, Arco Chemical, Witco, and Morton International. And the two-camp trend likely will have a variety of subsets, such as companies that will tend toward or reinvent themselves along life sciences lines such as Monsanto and Hoechst today, biotechnology companies, custom manufacturers, and custom research laboratories.

These structural changes will impact the chemical industry in a number of ways, including plant locations, foreign trade, research and development, employment, and, to a certain degree, will determine which companies will survive and which will not.

Michael Fitzpatrick is one of the panelists who believes the two-camp trend very likely will continue. "I think what will drive that will be the financial markets themselves; they'll be asking for better recognition of shareholder value in the different parts of the portfolio of the business. I think that's driving it more than any strategic issue within a company itself. But I also think that as long as management struggles with the difficulty of managing a company that has a very different portfolio split in it, the commodity versus specialty, there will be some internal driving force for splitting it out to enhance the focus."

Roger Hirl agreed that the "asset shuffle" is going to continue. "I think the best example we've seen of that recently is certainly Unilever and ICI." ICI is selling off its basic chemicals businesses and has acquired Unilever's specialty businesses. Hirl asked, "Would anybody have thought two years ago or even a year ago that something like this was going to happen, where suddenly a company [ICI] says it's going to spend $8 billion to acquire assets and it's going to divest $3 billion or $4 billion of its existing portfolio?"

Earnest Deavenport took something of a contrarian view. Although he believes that in the short term of five to 10 years the shift will continue, he sees two reasons for it to eventually reverse itself. The first is that conglomerates tend to run in cycles in the U.S. and the world. And this may be the time in one of these cycles when focused companies are more in favor. "As you look at some of the Asian players who are coming into the scene," he said, "obviously they don't tend to think in terms of specialty and commodity. They just think of investing their resources and their capital dollars and building large chemical companies."

And the other factor, he said, is "public versus private. I think today you are seeing a lot of companies going private. If you are a private chemical company, it doesn't really matter if you're a commodity company, a specialty company, or a combination of both. I think Huntsman is probably a pretty good example of this."

All of the panelists agreed, however, that while there always will be commodity chemical companies, there will probably never be a true specialty chemicals company because specialties age into commodities over time.

Gary Cook reinforced this point: "If you are really going to have a specialty business, you are going to have to be feeding in from the top all the time because you'll be dealing off the bottom. What that really means in practice is that what we are calling specialty companies will always be diversified because you will always have products in different stages of their life cycles. Unless you have both the wisdom and the discipline to recognize instantaneously when your specialty creeps over into the pseudocommodity range and sell it at that second, you will always be running a diversified company."

In the pharmaceutical industry, however, Brian Metcalf sees a different kind of restructuring. Here, many companies looking for core competencies have already divested themselves of their agricultural and other nonpharmaceutical businesses. However, Metcalf said, "There's another fracture happening in the pharmaceutical industry-whether one becomes a completely vertically integrated health care company, going from drug discovery through to patient management, or whether one stays strictly at drug discovery."

Examples of the two approaches, according to Metcalf, are Glaxo-Wellcome, which sticks with pharmaceuticals and drug discovery, and Merck, which is considering vertical integration through to patient health care management." Companies are now rolling the dice which way they are going to go," he said, "and these will be long-term decisions that will be difficult to reverse. I'm not sure which is going to be best."

The other fundamental structural change in the chemical industry is globalization of the industry, not only in terms of companies, but also in the buildup of national chemical industries around the world- a trend that will continue well beyond 25 years from now.

The panelists agreed that in terms of markets of the next 25 years, the U.S.- because of the size of its gross domestic market-will remain the premier single country outlet for chemicals in the world. Thus, it will remain the chemical manufacturing center.

But what is already happening and will continue to happen is that manufacturing will become even more spread out than it is today as manufacturing follows the markets. This means that chemical manufacturing will spread to what are today the developing countries as their gross domestic product, standard of living, and disposable income all improve.

This does not mean that production capacity is going to expand in these regions at the expense of more developed countries, especially the U.S., the panel agreed. By and large, few plants will be shut down to be replaced by operations in developing countries. It does mean, however, that chemical producers in developed countries are going to have to make a choice on an individual plant or product basis-invest in plants in the future in the home countries or invest abroad. Home country investment will be primarily dedicated to the domestic market or markets in easily accessible countries nearby.

A couple of important results will derive from this. Growth in chemical investment in developed countries will slow. There will be increased manufacturing parity among all of the regions of the world. And there will be increased competition among companies around the world-especially between those companies headquartered in the developed countries and native companies in developing nations.

Much of the foreign investment and export interest for U.S. and Western European countries over the past few years has been in the Asia-Pacific region. But, inspired by the success of economic reforms in Latin America, investment by companies headquartered in developed countries is beginning to grow in that region.

And there will be an increasing interest in Eastern Europe. Hirl pointed out that there is an enormous market in the former Soviet COMECON economic grouping of countries and other countries of the former Soviet Union. "That's a big export market that we tend not even to think of when we talk of exports into regions. Political stability is an issue. But, I think that in five or 10 years as Russia and all of those countries come to grips with free enterprise and all the things that affect free enterprise, the market will develop."

Cook believes that this market in what he says stretches from "Warsaw to Beijing" likely will be developed primarily by European companies. "If you talk about an export market, that's a pretty big one that sits right next door. And the European companies are doing a lot of investing there today to take advantage of primarily the raw materials base that, up to this point, they have been denied."

As Fitzpatrick pointed out, manufacturing efficiency of the new plants being built outside the U.S. will unquestionably be higher than the average for the U.S." It was not by chance that Germany and Japan became the manufacturing powers that they were following World War II," he said. "Their manufacturing base was destroyed during the war and rebuilt with the most modern technology in the 1950s. That gave them a level of efficiency and productivity that the U.S. manufacturing base, which was not destroyed, did not have.

"Now we are seeing a new installation of capacity in the Far East and it's going in with modern technology."

One real consequence of the buildup of modern, efficient capacity in nontraditional places around the globe- plus the possibility of more favorable raw materials costs in Asia and the Middle East-will be the effect on exports. The U.S. historically has enjoyed a large chemical trade surplus-exports exceeding imports. In 1996, the surplus totaled almost $18 billion, and was projected to be almost $20 billion for 1997. But over the next 25 years, that surplus likely will drop, if not actually disappear, as manufacturing abroad replaces exports from the U.S.

Deavenport believes that the U.S. will go from a nation that exports products to one that exports technology. Although not sanguine about the trade surplus, he said that the way it can be made to last longer is for the U.S. to "really promote free and open trade around the world." Commodity chemicals, he said, will cease to be traded on a large scale fairly soon because a U.S. company cannot afford to ship a 30-cent-per-lb product to Asia. "If you're selling a $2.50- or $3.00-per-lb product, shipping costs are not very significant," Deavenport said. "But duties can be very significant."

The other factor that is spurring exports now and probably will for the immediate future is trade blocs. Deavenport pointed out that, since the passage of the North American Free Trade Agreement, Eastman Chemical's business in Latin America has increased 30%.

Even though trade blocs are important and will continue to grow, it would be better if they expanded in size, becoming more efficient rather than increasing in number. The danger in this, many panelists agreed, is that they could become very powerful, regional blocs that could hinder global trade.

However, these trade blocs are probably only a transition to freer world trade. If the World Trade Organization works as it is supposed to, eliminating tariffs and nontariff barriers to trade, the need for trade blocs will be negated within the next 20 or so years.

Research
It is not only trade that will change as the chemical industry restructures along product lines and as it becomes more global. Research and development is in for some big shifts, too. Like the industry, it will restructure vis-à-vis commodities and specialties, and it, too, will become global. In both cases, the question of "big R/little d" and "little r/big D" will come into play.

Thus, the preponderance of R&D at the commodity companies will be big D process development, continuing to drive down the cost of production. This includes changes in plant processes and R&D in new catalysts.

Specialty-oriented companies will, conversely, see more big R research-inventing and developing new value-added, proprietary products.

But companies will be increasing their R&D initiatives in regions where they will be investing. Many European companies have been at the forefront of this movement with R&D investments in the U.S. Increasingly, companies will be doing research, and especially development, in places such as Asia, Eastern Europe, and, ultimately, Latin America. Deavenport believes that 25 years out the research centers will continue to be in Europe and the U.S. In 50 years, one might add Asia to that, and in 100 years, Latin America.

He noted that the key strength the U.S. has is its research universities, and as long as the country maintains that strength and other countries don't catch up, the U.S. will maintain a leadership position, certainly for the next 25 years.

Metcalf, however, said the spreading of research around the world is already happening, and that some of the technologies the U.S. needs-particularly in the computer age-are already easily accessed in places such as Singapore. Parts of the drug industry, he said, are using Singapore for clinical trial assembly, for data manipulation, and for bioinformatics.

Judith Giordan added that in some areas of the world, where there is a demand for technology but perhaps little infrastructure, countries will simply leapfrog to get where they want to be.

But Hirl pointed out that the infrastructure is also necessary. "Because prizes, such as the Nobel Prizes, are given to individuals, the tendency is to look at this as an individual enterprise. This is absolutely not true. It requires massive infrastructure and collaborative efforts and resources around that technology, that invention, and the individual who is cited as having invented it. This does not exist in many of these places, and it takes a long time to develop it."

There are other barriers to many countries becoming centers of research. Deavenport said that in some countries the educational system must be changed- not only at the university level, but kindergarten on up. "I think you are talking about three generations, minimum."

Cook added that not only the educational system needs changing, but also the political system. "I do not believe the level of innovation and creativity and inventiveness that comes out of a society as free and open as ours is coincidental nor that all the societies we're talking about have significantly more restrictions on entrepreneurial or independent activity than we have in the U.S."

Although the U.S. and Europe have and will continue to have the lead in research because of their university systems, that doesn't mean that there are not pockets of excellence elsewhere. China, for instance, is developing these pockets. Fitzpatrick pointed out that Shanghai Institute of Organic Chemistry is doing world-class small-molecule synthesis, and that Beijing University has some very good departments." We're already seeing some interesting technologies, particularly in rare-earth chemistry, coming from Beijing University," he said.

"I think it may take three generations [to develop the critical mass]," Fitzpatrick continued, "but they're going to be a formidable contributor to technology in the future."

According to Giordan, the three-generation framework may be too long; it may take less than that. "In some of those specific research areas in their pockets of expertise," she said," if they see it in their national interest to invest, if they put it together, there could be a critical mass in certain areas far more quickly than one imagines."

There was consensus among the panelists that there is little to worry about in terms of getting the researchers for the future. All agreed that the researchers being turned out by U.S. universities are highly trained, very insightful scientists.

However, there was a worry throughout the panel that the academic model may not be especially good for corporate research and must be overcome in newly recruited chemists. This model teaches a researcher to be more of a lone wolf and competitive with ideas, which is not the way research is done in industry, where more of a team approach is followed. To counter this, many companies are looking for ways to strengthen the interface between industry and academia.

Martha Krebs worries whether there is a disconnect between the culture of a company and the culture of R&D. "In particular, the disconnect becomes strongly apparent when there is a downsizing or a major change in investment in R&D."

Both Krebs and Giordan said that there must be more done in universities, especially with cross-disciplinary courses combining science and business. But, Giordan said, "while this is important, both chemistry departments and business schools look on this with skepticism."

Environment
One of the great problems that the chemical industry has faced for years is its environmental record and the perception of that record. Paul Anderson noted that the enormous advances in analytical methodology have made it possible to detect the presence of smaller and smaller impurities, and questioned the impact this has had on the industry.

Krebs said: "Having watched a number of issues develop, the smaller the concentrations you can detect, the less tolerant publics are for having those kinds of nominal contaminations. So the relationship between the regulator and the regulated depends not just on advances in science, but also on how we explain what the information means."

Thus, according to Krebs, the burden that it places on both scientists and the industrial community is an even greater burden of explanation and responsibility for public understanding. "Otherwise, the character of regulation, the relationship between the parties, is not going to change unless we do more with respect to public understanding."

The panel agreed that the regulatory process is as much and possibly more a political process than a scientific one. Therefore, the issue for the future of regulation will be the political and economic environment and how well those in political power, those able to pass laws, understand the technical issues involved in regulation.

It also agreed that the "command-and-control" aspect of regulation should change toward a cooperative effort between the regulator and the regulated. Hirl was outspoken on this: "If everybody continues to perceive a command-and-control type of regulatory process, then both sides-environmentalists and industry-tend to look at that and say, 'If I can come up with something that will cause the regulator to exercise command and control, then I'm going to work that issue.' "

However, Hirl said, "If everybody looks at things in a cooperative cost-benefit analysis, not only in legislation, but also in regulations that follow, then I think the whole perception of the technology that will find lower and lower parts per trillion in substances will be easier to deal with. If we work in an environment where the precautionary principle is the methodology by which our adversaries suggest regulation, then we are going to question the technology and the analyses and so forth. If we live in a more cooperative environment, then it's better."

There was a consensus among panelists that regulation should change, but no consensus that it would. Deavenport was perhaps the most pessimistic. He noted that in Europe there are very strict regulations, but that the parties have the ability to sit down and deal with the facts in a way much superior to what exists in the U.S.

"As long as we [in the U.S.] have command and control, the activist groups really don't want to pay attention to science. These groups tend to benefit from conflict. Harmony is not their game. So I think that somehow government and the free-enterprise system must move to more cooperation and try to deactivate this conflict that always tries to arise. Otherwise, we're not going to get anywhere in the next 25 or even the next 50 years.

"So I think that we have to change this environment where conflict gets the regulators' attention. Somehow the Europeans have figured out a way to do that much better than we have."

Future technology
All of the panelists made a stab at crystal ball gazing into the technological future, at least for the next 25 years. They generally foresee a chemical enterprise that is optimistically more at peace with nature and serving mankind in a gentler, nobler manner. Their predictions ranged from changes in food production and pharmaceuticals to catalysts and pollution-free industry.

Anderson: I have two ideas that actually come from a friend who is very interested in sustainability. Food plants will be cultivated in what is now desert by use of saltwater-tolerant plants from genomic engineering. That technology actually exists in rudimentary form today, so it's not so wild. The other prediction is that plants, because of this, will actually become the main source of oil and plastics. Again, the rudimentary technology for that already exists today.

Cook: One of the impacts that the interface between chemistry and biology will have will be on foodstuffs, not in terms of pesticides, fertilizers, and those sorts of things, but on things we actually eat. More and more chemistry is being used to generate synthetically-rather than in the ground-things we eat.

Another trend that already is taking place is "less is more." Agrochemicals was the first area to really demonstrate using less and less to accomplish more and more. The trend toward becoming more efficient both in our collection and use of fossil fuels and energy resources will accelerate in developed countries and begin to catch up in developing countries simply because there are higher value uses for them than burning them to keep us warm.

Deavenport: I think that what we will see in the next 25 years is commercialization of what's in the research laboratories today. What is in the research laboratories 25 years from now will be drastically different than what is there now. But, obviously, the biological processes will be much, much more commercial than they are today.

Also, information technology will dramatically change the way the industry interfaces with customers, suppliers, and our own employees around the world. You will see a chemical industry that looks entirely different in the way we source our raw materials, manufacture our products, and sell those products to people around the world.

Fitzpatrick: The first place I would look for innovation is the interface between chemistry and biology, already in full bloom in biotechnology. But if you back it up into the chemical industry, what you will see is increasingly elegant catalysis that will model biological systems. If you consider the conditions under which we do chemical synthesis today compared with the very mild ambient temperature, aqueous conditions that go on in biological systems, we have a long way to go. There is also a specificity in biological systems that doesn't exist in chemical processes today. So I predict that there will be major advances in catalysis that will look more biological-like in their specificity and conditions under which reactions occur.

A second interface for innovation will be between chemistry and physics, which is only now beginning to blossom. And the products there will be electronics, optics, and materials.

Giordan: There is a profound change in healthcare trends that will affect the pharmaceutical industry. What we traditionally accept as Western medicine is not going to look like traditional Western medicine any longer. The whole nature of research will start evolving and much of people's desire to be responsible for their own wellness and to take proactive stances will require them to review what pharmaceuticals can do for them, and what individuals can do for themselves-for example, meditation and aromatherapy.

There should be, within organizations, true diversity, not in terms of gender or race, but using a holistic approach to solving a problem-going to where the skills are whether it be a scientist, a marketing person, or someone else.

And we should redefine our disciplines. We have already begun this, talking not about chemistry and physics, but interfaces. I would urge us to get rid of that and talk about technological imperatives of the future and how all of us can work toward these technological imperatives.

Hirl: In 25 years, the word pollution will have largely disappeared from our nation's vocabulary, as far as the chemical industry is concerned. There will be no pollution of the air, land, or water from the chemical industry. With the technological advances in processes and in environmental control and based on the chemical industry's commitment to Responsible Care and product stewardship, coupled with our outreach to the public, the chemical industry will be perceived and classified as a nonpolluting, sustainable industry. When pollution is debated in the public arena, the chemical industry will not be an issue.

Krebs: As a result of the Internet and connectivity that advanced networking technologies will make possible, we will be able to operate facilities at a distance. At the Department of Energy, we're already putting them on-line. It's not enough to give a real sense of presence, but we're close.

The other aspect of the advanced Internet will be the ability to move and process large databases. Using the Human Genome Project as an example, we are going to be able to see a totally different set of questions being asked about biological structures, about the connections between the structures and their functions, and, ultimately, about applications because of the combination of the availability of the databases and the instrumentation.

Metcalf: Discovery chemistry in the pharmaceutical industry is undergoing a revolution driven by the biological interface. Biotechnologists, who can sequence thousands of genes very fast, are sort of leaving chemistry behind. So discovery chemists in the pharmaceutical industry are now wrestling for the first time with automation, with making many compounds at once. Consequently, chemists have an image of being old-fashioned, not adapting to new technologies. But we are realizing this, and hence, there's a revolution.

Paradoxically, the hundreds of thousands of compounds versus one at a time will create a shortage of chemists. There won't be enough chemists that we can recruit to take advantage of these discoveries.

I think that chemistry in the pharmaceutical industry also has been slow to move outside its field to bring in new technologies. We have to learn more from industries such as electronics, chips, and microetching.

Altogether, these distinguished panelists' views of the next quarter-century, when C&EN celebrates its 100th anniversary, paint a picture of a chemical industry that is far different from the one we know today. More than likely, many of the changes that will occur, many of the innovations that will change the character of chemical engineering and the industry it supports, have not even been thought about today.

So there will be many hills to climb in the chemical landscape and many precipices to avoid, but what should emerge is a continuing strong global chemical industry that will be an ever-increasing part of everyday life.